Cryptocurrency

A cryptocurrency is a digital asset whose ownership and transfers are recorded on a distributed ledger, most commonly a blockchain, a database replicated across many computers and updated by consensus rules rather than by a central administrator. Bitcoin, launched in 2009 by the pseudonymous Satoshi Nakamoto, was the first; thousands of others now exist.

Key takeaways

Cryptocurrencies record ownership on a shared ledger maintained by a network, not a bank.
Cryptography secures transactions; holders control assets through private keys.
Prices of most cryptocurrencies have historically been far more volatile than shares or bonds.
Regulatory treatment varies by country and continues to evolve.

How a blockchain records value

Transactions are grouped into blocks, each cryptographically linked to the previous one, hence "blockchain". Network participants validate new blocks according to the protocol's consensus mechanism: Bitcoin uses proof-of-work (specialised computers competing to solve puzzles, consuming significant electricity), while Ethereum switched in 2022 to proof-of-stake (validators posting collateral). Once recorded, transactions are practically irreversible: there is no central party to reverse a mistaken or fraudulent transfer.

Coins, tokens and stablecoins

Informally, a coin is the native asset of its own blockchain (bitcoin on Bitcoin, ether on Ethereum), while a token is created on top of an existing blockchain via smart contracts. Stablecoins are tokens designed to track a reference value, usually the U.S. dollar, backed by reserves of varying quality and transparency, a design that has failed visibly in some cases (TerraUSD, 2022).

Documented risks

Securities and consumer-protection regulators describe recurring risks: extreme price volatility, loss of access through lost private keys, exchange failures and fraud (the FTX collapse of 2022 being the largest example), and uneven legal protections compared with regulated brokerage accounts. How any of this fits a person's situation is a question for personal advice; this entry, like the rest of Investing Value, only describes how the mechanism works. The total market value of cryptocurrencies is tracked with the same arithmetic as market capitalization for shares.

Frequently asked questions

Is cryptocurrency legal tender?

Almost nowhere. Legal tender status (money that must be accepted for debts) is rare, El Salvador adopted bitcoin as legal tender in 2021 and rolled the policy back in 2025 under an IMF agreement. In most countries, crypto is legal to hold and trade but is property, not currency, for legal and tax purposes.

What does "decentralised" actually mean?

That the ledger is maintained by many independent participants following shared rules, so no single entity can unilaterally alter records. Degrees of decentralisation vary widely between projects.